File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

2012 Tax Form 940

2012 Tax Return Amendment2010 State Tax FormsPrintable 2011 Tax FormsFile A Free Tax ExtensionFile 2006 Taxes For FreeHr Block 2010 DownloadCt 1040nr PyHow Do I File My Taxes For 2011File A 1040ezEz FormFederal Income Tax Rates 20101040ez Form InstructionsFree Turbo Tax For Low IncomeState Income Tax ReturnHr Block Com1040ez GovHr Block Free Tax FilingMyfreetaxesIl 1040xFile 1040x Online FreeFree Tax Help For SeniorsState Income Tax By StateAmend 2011 Tax Return OnlineHow To Fill Out 1040 EzAmended 2011 Tax ReturnStudent IncomeTaxact 2011 Deluxe Federal Edition DownloadFederal Income Tax Form 1040ezFiling 2011 Tax Return In 2013Free File State Taxes OnlineFederal Tax Return FormsFiling Amended Tax ReturnFile 2010 State Tax ReturnFiling A Tax Return Online2011 Income TaxFree File TaxesHttp Freefile Irs GovHow Can I File State Taxes For Free1040 Form For 2010Amending Your Tax Return

2012 Tax Form 940

2012 tax form 940 Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. 2012 tax form 940 Proc. 2012 tax form 940 2009-37 Table of Contents SECTION 1. 2012 tax form 940 PURPOSE SECTION 2. 2012 tax form 940 BACKGROUND SECTION 3. 2012 tax form 940 SCOPE SECTION 4. 2012 tax form 940 ELECTION PROCEDURES SECTION 5. 2012 tax form 940 REQUIRED INFORMATION STATEMENT SECTION 6. 2012 tax form 940 EFFECTIVE DATE SECTION 7. 2012 tax form 940 TRANSITION RULE SECTION 8. 2012 tax form 940 PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. 2012 tax form 940 PURPOSE . 2012 tax form 940 01 This revenue procedure provides the exclusive procedures for taxpayers to make an election to defer recognizing discharge of indebtedness income (“COD income”) under § 108(i) of the Internal Revenue Code. 2012 tax form 940 . 2012 tax form 940 02 This revenue procedure also requires taxpayers making the § 108(i) election to provide additional information on returns beginning with the taxable year following the taxable year for which the taxpayer makes the election. 2012 tax form 940 This revenue procedure describes the time and manner of providing this additional information. 2012 tax form 940 . 2012 tax form 940 03 The Internal Revenue Service and Treasury Department intend to issue additional guidance under § 108(i) that may include regulations addressing matters in this revenue procedure. 2012 tax form 940 Taxpayers should be aware that these regulations may be retroactive. 2012 tax form 940 See § 7805(b)(2). 2012 tax form 940 This revenue procedure may be modified to provide procedures consistent with additional guidance. 2012 tax form 940 SECTION 2. 2012 tax form 940 BACKGROUND . 2012 tax form 940 01 Section 108(i), Generally. 2012 tax form 940 Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. 2012 tax form 940 L. 2012 tax form 940 No. 2012 tax form 940 111-5, 123 Stat. 2012 tax form 940 338. 2012 tax form 940 In general, § 108(i) provides that, at the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year following the taxable year of the reacquisition. 2012 tax form 940 Generally, if a taxpayer makes a § 108(i) election and reacquires (or is treated as reacquiring) the applicable debt instrument generating the COD income for a new debt instrument with original issue discount (“OID”), then interest deductions for this OID also are deferred, as provided in § 108(i)(2). 2012 tax form 940 The OID deferral rule, however, does not apply if the amount of OID is less than a de minimis amount, as determined under § 1273(a)(3) and § 1. 2012 tax form 940 1273-1(d) of the Income Tax Regulations. 2012 tax form 940 The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. 2012 tax form 940 For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). 2012 tax form 940 A taxpayer must take into account any item of income or deduction deferred under § 108(i), and not previously taken into account, in the taxable year in which certain events occur (such as the liquidation of the taxpayer and upon other events specified in administrative guidance). 2012 tax form 940 See § 108(i)(5)(D). 2012 tax form 940 The rule regarding acceleration of deferred COD income and OID deductions also applies in the case of certain dispositions by persons holding ownership interests in pass-through entities. 2012 tax form 940 Section 108(i)(5)(D)(ii). 2012 tax form 940 For purposes of § 108(i), regulated investment companies (as defined in § 851(a)) and real estate investment trusts (as defined in § 856(a)) are not pass-through entities. 2012 tax form 940 . 2012 tax form 940 02 Applicable Debt Instrument. 2012 tax form 940 Section 108(i)(3)(A) defines the term “applicable debt instrument” to mean any debt instrument issued by a C corporation or by any other person in connection with the conduct of a trade or business by that person. 2012 tax form 940 The term “debt instrument” means any bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness within the meaning of § 1275(a)(1). 2012 tax form 940 Section 108(i)(3)(B). 2012 tax form 940 For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. 2012 tax form 940 1502-13(g)(2)(ii)), an applicable debt instrument includes only an instrument for which COD income is realized upon the instrument’s deemed satisfaction under § 1. 2012 tax form 940 1502-13(g)(5). 2012 tax form 940 . 2012 tax form 940 03 Reacquisition. 2012 tax form 940 Section 108(i)(4)(A) defines the term “reacquisition” to mean, with respect to any applicable debt instrument, any acquisition of the debt instrument by the debtor that issued (or is otherwise the obligor under) the debt instrument, or a person related to the debtor under § 108(e)(4). 2012 tax form 940 The term “acquisition” includes an acquisition of the debt instrument for cash or other property, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, and the complete forgiveness of the indebtedness by the holder of the debt instrument. 2012 tax form 940 See § 108(i)(4)(B). 2012 tax form 940 The term “acquisition” also includes an indirect acquisition within the meaning of § 1. 2012 tax form 940 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). 2012 tax form 940 For example, if a corporation acquires debt of a partnership that the partnership issued in connection with its trade or business, and the partnership and corporation become related within six months of the corporation’s acquisition of the debt, the indirect acquisition is an acquisition for which an election under § 108(i) may be made. 2012 tax form 940 . 2012 tax form 940 04 General Requirements for the Section 108(i) Election. 2012 tax form 940 Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. 2012 tax form 940 (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return. 2012 tax form 940 ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. 2012 tax form 940 Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. 2012 tax form 940 . 2012 tax form 940 05 Section 108(i) Elections Made by Pass-through Entities. 2012 tax form 940 In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. 2012 tax form 940 Section 108(i)(5)(B)(iii). 2012 tax form 940 . 2012 tax form 940 06 Additional Information on Subsequent Years’ Returns. 2012 tax form 940 Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years. 2012 tax form 940 . 2012 tax form 940 07 Exclusivity. 2012 tax form 940 Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i). 2012 tax form 940 . 2012 tax form 940 08 Allocation of Deferred COD Income on Partnership Indebtedness. 2012 tax form 940 Section 4. 2012 tax form 940 04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. 2012 tax form 940 If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. 2012 tax form 940 704-1(b)(2)(iii). 2012 tax form 940 Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). 2012 tax form 940 The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). 2012 tax form 940 The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”). 2012 tax form 940 . 2012 tax form 940 09 Partner’s Deferred § 752 Amount. 2012 tax form 940 A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). 2012 tax form 940 A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). 2012 tax form 940 To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1. 2012 tax form 940 731-1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). 2012 tax form 940 See Rev. 2012 tax form 940 Rul. 2012 tax form 940 92-97, 1992-2 C. 2012 tax form 940 B. 2012 tax form 940 124, and Rev. 2012 tax form 940 Rul. 2012 tax form 940 94-4, 1994-1 C. 2012 tax form 940 B. 2012 tax form 940 195. 2012 tax form 940 A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i). 2012 tax form 940 . 2012 tax form 940 10 Allocation of Deferred COD Income on S Corporation Indebtedness. 2012 tax form 940 For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction. 2012 tax form 940 . 2012 tax form 940 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. 2012 tax form 940 (1) In general. 2012 tax form 940 The Service and Treasury Department intend to issue regulations regarding the computation of a corporation’s earnings and profits with respect to COD income and OID deductions that are deferred under § 108(i). 2012 tax form 940 These regulations generally will provide that deferred COD income increases earnings and profits in the taxable year that it is realized and not in the taxable year or years that the deferred COD income is includible in gross income. 2012 tax form 940 OID deductions deferred under § 108(i) generally will decrease earnings and profits in the taxable year or years in which the deduction would be allowed without regard to § 108(i). 2012 tax form 940 COD income and OID deductions that are deferred increase or decrease adjusted current earnings under § 56(g)(4) in the taxable year or years that the income or deduction is includible or deductible in determining taxable income. 2012 tax form 940 See § 1. 2012 tax form 940 56(g)-1(c)(1). 2012 tax form 940 (2) Exceptions for certain special status corporations. 2012 tax form 940 The Service and Treasury Department intend to issue regulations providing that in the case of regulated investment companies and real estate investment trusts, COD income deferred under § 108(i) generally increases earnings and profits in the taxable year or years in which the deferred COD income is includible in gross income and not in the year that the deferred COD income is realized. 2012 tax form 940 OID deductions deferred under § 108(i) generally decrease earnings and profits in the taxable year or years that the deferred OID deductions are deductible. 2012 tax form 940 . 2012 tax form 940 12 Extension of Time to Make Election. 2012 tax form 940 Under § 301. 2012 tax form 940 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. 2012 tax form 940 An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. 2012 tax form 940 Section 301. 2012 tax form 940 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. 2012 tax form 940 SECTION 3. 2012 tax form 940 SCOPE This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i). 2012 tax form 940 SECTION 4. 2012 tax form 940 ELECTION PROCEDURES . 2012 tax form 940 01 In General. 2012 tax form 940 (1) A taxpayer within the scope of this revenue procedure makes the § 108(i) election by— (a) Attaching a statement meeting the requirements of section 4. 2012 tax form 940 05 of this revenue procedure to the taxpayer’s timely filed (including extensions) original federal income tax return for the taxable year in which the reacquisition of the applicable debt instrument occurs, and (b) If applicable, satisfying the additional requirements of section 4. 2012 tax form 940 07, 4. 2012 tax form 940 08, 4. 2012 tax form 940 09, or 4. 2012 tax form 940 10 of this revenue procedure. 2012 tax form 940 (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. 2012 tax form 940 01(1)(a) of this revenue procedure for making the § 108(i) election. 2012 tax form 940 The rules that apply to an automatic extension under § 301. 2012 tax form 940 9100-2(a) apply to this automatic extension. 2012 tax form 940 . 2012 tax form 940 02 Section 108(i) Elections Made by Members of Consolidated Groups. 2012 tax form 940 The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. 2012 tax form 940 See § 1. 2012 tax form 940 1502-77(a). 2012 tax form 940 . 2012 tax form 940 03 Aggregation Rule. 2012 tax form 940 A taxpayer within the scope of this revenue procedure may treat two or more applicable debt instruments that are part of the same issue and that are reacquired during the same taxable year as one applicable debt instrument for purposes of this revenue procedure. 2012 tax form 940 A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. 2012 tax form 940 03 if the owners and their ownership interests in the pass-through entity immediately prior to the reacquisition of each applicable debt instrument are not identical. 2012 tax form 940 . 2012 tax form 940 04 Partial Elections. 2012 tax form 940 (1) A taxpayer within the scope of this revenue procedure may make an election for any portion of COD income realized from the reacquisition of any applicable debt instrument. 2012 tax form 940 Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument, the taxpayer may elect under § 108(i)(1) to defer only $40 of the $100 of COD income. 2012 tax form 940 The taxpayer may exclude from income the portion of COD income that the taxpayer does not elect to defer under § 108(i) ($60 in this example) under § 108(a)(1)(A), (B), (C), or (D), if applicable. 2012 tax form 940 (2) A taxpayer is not required to make an election for the same portion of COD income arising from each applicable debt instrument that it reacquires, but may make an election for different portions of COD income arising from different applicable debt instruments (whether or not part of the same issue). 2012 tax form 940 Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument (Instrument A) and $100 of COD income from the reacquisition of a different applicable debt instrument (Instrument B), the taxpayer may elect to defer all or a portion of the COD income associated with Instrument A and none or a different portion of the COD income associated with Instrument B. 2012 tax form 940 (3) A partnership that elects to defer less than all of the COD income realized from the reacquisition of an applicable debt instrument may determine, in any manner, the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. 2012 tax form 940 Thus, for example, one partner’s deferred amount may be zero while another partner’s deferred amount may equal that partner’s COD income amount (or any portion thereof). 2012 tax form 940 A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. 2012 tax form 940 The provisions of this section 4. 2012 tax form 940 04(3) apply for purposes of § 108(i) only and are not intended as an interpretation of or a change to existing law under § 704. 2012 tax form 940 . 2012 tax form 940 05 Contents of Election Statement. 2012 tax form 940 A statement meets the requirements of this section 4. 2012 tax form 940 05 if the statement— (1) Label. 2012 tax form 940 States “Section 108(i) Election” across the top. 2012 tax form 940 (2) Required information. 2012 tax form 940 Provides, for each applicable debt instrument the reacquisition of which generates COD income that the taxpayer is electing to defer under § 108(i)— (a) The name and taxpayer identification numbers, if any, of the issuer or issuers of the applicable debt instrument; (b) A general description of the applicable debt instrument (including the issue and maturity dates) and, in the case of any person other than a C corporation, a general description of the person’s trade or business to which the applicable debt instrument is connected; (c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s)); (d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated; (e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i); (f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and (g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1. 2012 tax form 940 1001-3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year. 2012 tax form 940 . 2012 tax form 940 06 Supplemental information. 2012 tax form 940 The statement described in section 4. 2012 tax form 940 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. 2012 tax form 940 05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4. 2012 tax form 940 05(2)(d) of this revenue procedure. 2012 tax form 940 This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. 2012 tax form 940 If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s additional COD income that would be deferred (the partner’s additional deferred amount), which the partnership may describe for each partner as the partner’s entire share of the partnership’s additional COD income or as a percentage of the partner’s share of the partnership’s additional COD income. 2012 tax form 940 If the taxpayer is an S corporation, the S corporation must specify each shareholder’s share of the S corporation’s additional COD income that would be deferred, which the S corporation may describe for each shareholder as the shareholder’s entire share of the S corporation’s additional COD income or as a percentage of the shareholder’s share of the S corporation’s additional COD income. 2012 tax form 940 In the case of partnerships and S corporations, the additional COD income and the portion of additional COD income that would be deferred are allocated or determined as provided in sections 2. 2012 tax form 940 08, 2. 2012 tax form 940 10 and, if applicable, 4. 2012 tax form 940 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. 2012 tax form 940 . 2012 tax form 940 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. 2012 tax form 940 The rules of this section 4. 2012 tax form 940 07 apply to partnerships other than partnerships described in section 4. 2012 tax form 940 10 of this revenue procedure. 2012 tax form 940 (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). 2012 tax form 940 For the taxable year in which the § 108(i) election is made, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B), Partner’s Share of Income, Deductions, Credits, etc. 2012 tax form 940 , in the manner specified in the instructions to the forms, for each partner § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. 2012 tax form 940 Partnerships reporting § 108(i) information on the 2008 Schedule K-1 (Form 1065 or Form 1065-B) must report for each partner on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made: (a) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 11 (“other income”) using code F for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (b) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or (ii), in box 13 (“other deductions”) using code W for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (c) The partner’s deferred amount that has not been included in income in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (d) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (e) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); and (f) The partner’s deferred § 752 amount remaining as of the end of the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B). 2012 tax form 940 (2) Election information statement provided to partners. 2012 tax form 940 The partnership must attach to the Schedule K-1 (Form 1065 or Form 1065-B) provided to each partner for the taxable year in which the § 108(i) election is made a statement satisfying the requirements of this section 4. 2012 tax form 940 07(2). 2012 tax form 940 The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. 2012 tax form 940 A statement meets the requirements of this section 4. 2012 tax form 940 07(2) if the statement— (a) Label. 2012 tax form 940 States “Section 108(i) Election Information Statement for Partners” across the top. 2012 tax form 940 (b) Required information. 2012 tax form 940 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (i) The partner’s COD income amount, the partner’s deferred amount, and the partner’s included amount; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (v) The partner’s share of each liability of the partnership described in section 4. 2012 tax form 940 05(2)(g) of this revenue procedure; (vi) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument; (vii) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument that is treated as a distribution of money to the partner under § 752 in the current taxable year; (viii) The partner’s deferred § 752 amount as described in section 2. 2012 tax form 940 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. 2012 tax form 940 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. 2012 tax form 940 (c) If a partner fails to provide the written statement required by section 4. 2012 tax form 940 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. 2012 tax form 940 07(2)(b)(vii) and (viii) of this revenue procedure cannot be calculated because the partner did not provide the information necessary to report these amounts. 2012 tax form 940 (3) Partner reporting requirements. 2012 tax form 940 The partnership must make reasonable efforts prior to making a § 108(i) election to secure from each partner with a deferred amount for which it does not have the information necessary to compute the partner’s basis in its partnership interest (and its deferred § 752 amount as described in section 2. 2012 tax form 940 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. 2012 tax form 940 Each partner with a deferred amount must provide this written statement to the partnership within 30 days of the date of request by the partnership. 2012 tax form 940 A partner’s failure to comply with this reporting requirement does not invalidate the partnership’s election under § 108(i) for an applicable debt instrument only if the partnership makes reasonable efforts before making the § 108(i) election to obtain the written statement from the partner and otherwise complies with the requirements of section 4 of this revenue procedure. 2012 tax form 940 If a partner provides its written statement under this section 4. 2012 tax form 940 07(3) after the partnership has provided to the partner the Section 108(i) Election Information Statement for Partners, the partnership must provide to the partner a revised Section 108(i) Election Information Statement for Partners reporting the information required under section 4. 2012 tax form 940 07(2)(b)(vii) and (viii) of this revenue procedure and report the partner’s deferred § 752 amount on the partner’s Schedule K-1 (Form 1065 or Form 1065-B) in subsequent taxable years. 2012 tax form 940 . 2012 tax form 940 08 Additional Requirements for an S Corporation Making a § 108(i) Election. 2012 tax form 940 (1) Information filing on Schedule K-1 (Form 1120S). 2012 tax form 940 For the taxable year in which the § 108(i) election is made, the S corporation must report on the Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. 2012 tax form 940 , in the manner specified in the instructions to the forms, for each shareholder § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. 2012 tax form 940 S corporations reporting § 108(i) information on the 2008 Schedule K-1 (Form 1120S) must report for each shareholder, on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made, the shareholder’s share of the S corporation’s: (a) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 10 (“other income”) using code E; (b) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or (ii), in box 12 (“other deductions”) using code S; (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years, in box 17 (“other information”) using code T; and (d) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 17 (“other information”) using code T. 2012 tax form 940 (2) Election information statement provided to shareholders. 2012 tax form 940 The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for the taxable year in which the § 108(i) election is made, a statement satisfying the requirements of this section 4. 2012 tax form 940 08(2). 2012 tax form 940 The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. 2012 tax form 940 A statement meets the requirements of this section 4. 2012 tax form 940 08(2) if the statement— (a) Label. 2012 tax form 940 States “Section 108(i) Election Information Statement for Shareholders” across the top. 2012 tax form 940 (b) Required information. 2012 tax form 940 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income that the S corporation elects to defer under § 108(i); (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (v) Additional COD income that would be deferred as described in section 4. 2012 tax form 940 06 of this revenue procedure. 2012 tax form 940 . 2012 tax form 940 09 Section 108(i) Elections Made on Behalf of Certain Foreign Corporations. 2012 tax form 940 The controlling domestic shareholder(s) (or common parent of the controlling domestic shareholder(s), if applicable) of a controlled foreign corporation or a noncontrolled § 902 corporation not otherwise required to file a return of tax may make the § 108(i) election on behalf of the foreign corporation by satisfying the requirements of § 1. 2012 tax form 940 964-1(c)(3). 2012 tax form 940 Each controlling domestic shareholder must attach a statement identifying the foreign corporation and satisfying the requirements of section 4. 2012 tax form 940 05 of this revenue procedure and, if applicable, section 4. 2012 tax form 940 06 of this revenue procedure, to its federal income tax return for the taxable year ending within or with the taxable year of the foreign corporation for which the § 108(i) election is made. 2012 tax form 940 . 2012 tax form 940 10 Section 108(i) Elections Made By Certain Foreign Partnerships. 2012 tax form 940 The rules of this section 4. 2012 tax form 940 10 apply to a foreign partnership making a § 108(i) election that is not otherwise required to file a federal partnership return (“nonfiling foreign partnership”). 2012 tax form 940 See § 1. 2012 tax form 940 6031(a)-1(b). 2012 tax form 940 (1) A nonfiling foreign partnership making the election must attach a statement satisfying the requirements of section 4. 2012 tax form 940 05 of this revenue procedure and, if applicable, section 4. 2012 tax form 940 06 of this revenue procedure, to a partnership return satisfying the requirements of § 1. 2012 tax form 940 6031(a)-1(b)(5) it files with the Service. 2012 tax form 940 In addition, a nonfiling foreign partnership must include in the information required in section 4. 2012 tax form 940 05(2)(d) and (e) of this revenue procedure the aggregate amounts for all partners as well as the aggregate amounts for all U. 2012 tax form 940 S. 2012 tax form 940 persons (as defined in § 7701(a)(30)) and controlled foreign corporation(s) that are partners with deferred amounts in the nonfiling foreign partnership (“affected partners”). 2012 tax form 940 (2) The nonfiling foreign partnership must make the election, in accordance with § 1. 2012 tax form 940 6031(a)-1(b)(5), by the date provided in section 4. 2012 tax form 940 01(1)(a) of this revenue procedure, as if it had a filing obligation for the taxable year in which the reacquisition of the applicable debt instrument occurs. 2012 tax form 940 (3) For each affected partner, the partnership must file with the Service a Schedule K-1 (Form 1065) and report on the Schedule K-1 (Form 1065) for the affected partner as provided in section 4. 2012 tax form 940 07(1) of this revenue procedure. 2012 tax form 940 Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). 2012 tax form 940 The partnership must provide a copy of the respective Schedule K-1 (Form 1065) to each affected partner and must also attach to the Schedule K-1 (Form 1065) provided to each affected partner a statement satisfying the requirements of section 4. 2012 tax form 940 07(2) of this revenue procedure by the date provided in section 4. 2012 tax form 940 01(1)(a) of this revenue procedure. 2012 tax form 940 The partnership should not attach any statement described in section 4. 2012 tax form 940 07(2) of this revenue procedure to the Schedules K-1 that are filed with the Service. 2012 tax form 940 However, the partnership must retain the statements provided to the affected partners, and each affected partner must retain that partner’s statement, in their respective books and records. 2012 tax form 940 (4) The partnership and each affected partner must satisfy the requirements of section 4. 2012 tax form 940 07(3) of this revenue procedure. 2012 tax form 940 . 2012 tax form 940 11 Protective § 108(i) Election. 2012 tax form 940 (1) In general. 2012 tax form 940 A taxpayer may make a protective election under § 108(i) for an applicable debt instrument if the taxpayer concludes that a particular transaction does not result in the realization of COD income, reports the transaction on its federal income tax return in a manner consistent with the taxpayer’s conclusion, and would be within the scope of this revenue procedure if the taxpayer’s conclusion were incorrect. 2012 tax form 940 If the Service at any time determines the taxpayer’s conclusion that the particular transaction does not result in the realization of COD income is incorrect, the taxpayer’s protective election is treated as a valid, irrevocable election under § 108(i). 2012 tax form 940 Thus, if a taxpayer makes a protective election, the Service subsequently may require the taxpayer to report COD income deferred pursuant to the valid and irrevocable protective election even if the statute of limitations has expired for the year in which the COD income was realized and the protective election was made. 2012 tax form 940 A taxpayer makes a protective election by attaching a statement satisfying the requirements of this section 4. 2012 tax form 940 11(1) to the taxpayer’s original federal income tax return within the period described in section 4. 2012 tax form 940 01(1)(a) of this revenue procedure. 2012 tax form 940 The taxpayer also must attach the election to its federal income tax return in each of the 8 or 9 taxable years, as applicable, following the taxable year of the election. 2012 tax form 940 A statement meets the requirements of this section 4. 2012 tax form 940 11(1) if the statement— (a) States “Section 108(i) Protective Election” across the top; (b) Provides the information required under section 4. 2012 tax form 940 05(2)(a), (b), and (c) of this revenue procedure; (c) Provides that the amounts described in sections 4. 2012 tax form 940 05(2)(d) and (e) of this revenue procedure are zero; and (d) Provides the information described in section 4. 2012 tax form 940 06 of this revenue procedure. 2012 tax form 940 (2) Statements provided to shareholders and partners. 2012 tax form 940 (a) For each applicable debt instrument, a partnership or S corporation that makes a protective election must attach to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) it provides each of its partners or shareholders, as the case may be, for the taxable year in which the protective election is made a statement containing the information described in section 4. 2012 tax form 940 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the partner’s or shareholder’s share of the additional COD income that would be deferred as described in section 4. 2012 tax form 940 11(1)(d) of this revenue procedure. 2012 tax form 940 (b) The partnership or S corporation should not attach the statements described in this section 4. 2012 tax form 940 11(2) to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. 2012 tax form 940 . 2012 tax form 940 12 Election-Year Reporting by Tiered Pass-Through Entities. 2012 tax form 940 (1) A partnership required to file a U. 2012 tax form 940 S. 2012 tax form 940 partnership return other than under § 1. 2012 tax form 940 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting its share of any items listed in section 4. 2012 tax form 940 07(1) of this revenue procedure, must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. 2012 tax form 940 07(1)(a) through (d) of this revenue procedure). 2012 tax form 940 (2) If a partnership described in section 4. 2012 tax form 940 12(1) of this revenue procedure receives a statement described in sections 4. 2012 tax form 940 07(2) or 4. 2012 tax form 940 10(3) of this revenue procedure or this section 4. 2012 tax form 940 12(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership, including the information described in section 4. 2012 tax form 940 07(2)(b)(x) of this revenue procedure. 2012 tax form 940 If an S corporation receives a statement described in sections 4. 2012 tax form 940 07(2) or 4. 2012 tax form 940 10(3) of this revenue procedure or this section 4. 2012 tax form 940 12(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 4. 2012 tax form 940 07(2)(b)(i), (ii), (iii), (iv) and (ix) of this revenue procedure. 2012 tax form 940 The partnership or S corporation must attach this statement or statements to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) that it provides to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. 2012 tax form 940 The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. 2012 tax form 940 (3) A partnership that receives a statement described in this section 4 identifying its COD income amount with respect to an applicable debt instrument must allocate its COD income amount, without regard to § 108(i), to the partners in the partnership immediately before the reacquisition transaction in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. 2012 tax form 940 704-1(b)(2)(iii). 2012 tax form 940 The partnership may determine in any manner the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. 2012 tax form 940 No partner’s deferred amount with respect to an applicable debt instrument may exceed its COD income amount with respect to the applicable debt instrument, and the aggregate of deferred amounts of its partners with respect to an applicable debt instrument must equal the partnership’s deferred amount with respect to the applicable debt instrument. 2012 tax form 940 The partnership allocates amounts described in section 4. 2012 tax form 940 06 of this revenue procedure under this section 4. 2012 tax form 940 12(3) as if the additional COD income was realized. 2012 tax form 940 (4) The deferred § 752 amount for partners in a partnership making a § 108(i) election is calculated only for the partnership’s direct partners. 2012 tax form 940 No further adjustment to the deferred § 752 amount is made to reflect the basis or other attributes of partners that are indirect partners in the partnership. 2012 tax form 940 (5) If an S corporation receives a statement described in this section 4 identifying its COD income amount, deferred amount, included amount or additional COD income that would be deferred with respect to an applicable debt instrument, these amounts are shared pro rata only among those shareholders that are shareholders in the S corporation immediately before the reacquisition transaction. 2012 tax form 940 (6) This paragraph 4. 2012 tax form 940 12(6) provides the rules for Category 1 and Category 2 filers of Form 8865, Return of U. 2012 tax form 940 S. 2012 tax form 940 Persons With Respect to Certain Foreign Partnerships, as defined in the instructions for Form 8865, if the foreign partnership, for which the Category 1 or Category 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items listed in section 4. 2012 tax form 940 07(1) of this revenue procedure, or a statement described in sections 4. 2012 tax form 940 07(2) or 4. 2012 tax form 940 10(3) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). 2012 tax form 940 (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. 2012 tax form 940 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 4. 2012 tax form 940 12(6)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. 2012 tax form 940 (b) A Category 2 filer must include its share of the information described in section 4. 2012 tax form 940 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. 2012 tax form 940 Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. 2012 tax form 940 (c) The Category 1 and Category 2 filers should not attach the statements described in sections 4. 2012 tax form 940 12(6)(a)(ii) and 4. 2012 tax form 940 12(6)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. 2012 tax form 940 However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. 2012 tax form 940 (7) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 4. 2012 tax form 940 12(1) of this revenue procedure or a shareholder of an S corporation described in section 4. 2012 tax form 940 12(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 4. 2012 tax form 940 12(1) and (2) of this revenue procedure. 2012 tax form 940 Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. 2012 tax form 940 12(6) of this revenue procedure. 2012 tax form 940 (8) The provisions of section 4. 2012 tax form 940 12(2), (3), (5) and (6) of this revenue procedure also apply to a statement received that is described in section 4. 2012 tax form 940 11(2) of this revenue procedure, except that the information that must be provided are those items described in section 4. 2012 tax form 940 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the share of the partner or shareholder in the amounts described in section 4. 2012 tax form 940 11(1)(d) of this revenue procedure. 2012 tax form 940 SECTION 5. 2012 tax form 940 REQUIRED INFORMATION STATEMENT . 2012 tax form 940 01 Annual Information Statements. 2012 tax form 940 Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. 2012 tax form 940 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. 2012 tax form 940 02 of this revenue procedure to its federal income tax return for each taxable year beginning with the taxable year following the taxable year for which the taxpayer makes the election and ending with the first taxable year in which all items deferred under § 108(i) have been recognized. 2012 tax form 940 . 2012 tax form 940 02 Contents of Statement. 2012 tax form 940 A statement meets the requirements of this section 5. 2012 tax form 940 02 if the statement— (1) Label. 2012 tax form 940 States “Section 108(i) Information Statement” across the top; (2) Required information. 2012 tax form 940 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (a) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(1); (b) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(5)(D), including a description and date of the acceleration event described in § 108(i)(5)(D); (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years (in the case of a partnership, the aggregate of the partners’ deferred amounts that have not been included in income in the current or prior taxable years, and in the case of an S corporation, the S corporation’s COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years); (d) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (e) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D); and (f) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. 2012 tax form 940 (3) Election attached. 2012 tax form 940 Includes a copy of the election statement described in section 4. 2012 tax form 940 05 of this revenue procedure. 2012 tax form 940 . 2012 tax form 940 03 Additional Annual Reporting Requirements for Certain Partnerships. 2012 tax form 940 The rules of this section 5. 2012 tax form 940 03 apply to partnerships other than partnerships described in section 5. 2012 tax form 940 05 of this revenue procedure. 2012 tax form 940 (1) In general. 2012 tax form 940 A partnership that makes an election under § 108(i) (except for a protective election under section 4. 2012 tax form 940 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. 2012 tax form 940 01 of this revenue procedure. 2012 tax form 940 In addition, for each taxable year in which a statement is required under section 5. 2012 tax form 940 01 of this revenue procedure, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B) for each partner § 108(i) information in the manner described in section 4. 2012 tax form 940 07(1) of this revenue procedure. 2012 tax form 940 (2) Annual information statements provided to partners. 2012 tax form 940 The partnership must attach to the Schedule K-1 (Form 1065) provided to each partner for each taxable year in which a statement is required under section 5. 2012 tax form 940 01 of this revenue procedure, a statement meeting the requirements of this section 5. 2012 tax form 940 03(2). 2012 tax form 940 The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. 2012 tax form 940 A statement meets the requirements of this section 5. 2012 tax form 940 03(2) if the statement— (a) Label. 2012 tax form 940 States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. 2012 tax form 940 (b) Required information. 2012 tax form 940 Clearly identifies for each applicable debt instrument to which a § 108(i) election applies— (i) The partner’s deferred amount that has not been included in income as of the end of the prior taxable year; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1); (iii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) The partner’s deferred amount that has not been included in income in the current or prior taxable years; (v) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (viii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years; and (ix) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year and any remaining deferred § 752 amount. 2012 tax form 940 If a partner fails to provide the written statement required by section 4. 2012 tax form 940 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. 2012 tax form 940 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. 2012 tax form 940 . 2012 tax form 940 04 Additional Annual Reporting Requirements for an S Corporation. 2012 tax form 940 (1) In general. 2012 tax form 940 An S corporation that makes an election under § 108(i) (except for a protective election under section 4. 2012 tax form 940 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. 2012 tax form 940 01 of this revenue procedure. 2012 tax form 940 In addition, for each taxable year in which a statement is required under section 5. 2012 tax form 940 01 of this revenue procedure, the S corporation must report on the Schedule K-1 (Form 1120S) for each shareholder § 108(i) information in the manner described in section 4. 2012 tax form 940 08(1) of this revenue procedure. 2012 tax form 940 (2) Annual information statements provided to shareholders. 2012 tax form 940 The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for each taxable year in which a statement is required under section 5. 2012 tax form 940 01 of this revenue procedure a statement meeting the requirements of this section 5. 2012 tax form 940 04(2). 2012 tax form 940 The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. 2012 tax form 940 A statement meets the requirements of this section 5. 2012 tax form 940 04(2) if the statement— (a) Label. 2012 tax form 940 States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. 2012 tax form 940 Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income deferred under § 108(i) that has not been included in income as of the end of the prior taxable year; (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1); (iii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years; (v) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (viii) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. 2012 tax form 940 . 2012 tax form 940 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. 2012 tax form 940 (1) The rules of this section 5. 2012 tax form 940 05 apply to nonfiling foreign partnerships. 2012 tax form 940 (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. 2012 tax form 940 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. 2012 tax form 940 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. 2012 tax form 940 01 of this revenue procedure. 2012 tax form 940 (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. 2012 tax form 940 01 of this revenue procedure, but only for that portion of the COD income allocated to affected partners. 2012 tax form 940 (4) For each taxable year in which a statement is required under section 5. 2012 tax form 940 01 of this revenue procedure, the nonfiling foreign partnership must provide each affected partner a Schedule K-1 (Form 1065) reporting § 108(i) information in the manner described in section 4. 2012 tax form 940 07(1) of this revenue procedure. 2012 tax form 940 Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). 2012 tax form 940 The partnership must provide each affected partner with a copy of the Schedule K-1 (Form 1065) by the date provided in § 1. 2012 tax form 940 6031(b)-1T(b). 2012 tax form 940 The partnership must attach the Schedules K-1 (Form 1065) to the federal income tax returns filed with the Service pursuant to section 5. 2012 tax form 940 05(2) of this revenue procedure. 2012 tax form 940 (5) For each taxable year for which a statement is required under section 5. 2012 tax form 940 01 of this revenue procedure, the nonfiling foreign partnership must attach to each affected partner’s Schedule K-1 (Form 1065) a statement meeting the requirements of section 5. 2012 tax form 940 03(2) of this revenue procedure. 2012 tax form 940 The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain the statements, and each partner must retain that partner’s statement, in their respective books and records. 2012 tax form 940 . 2012 tax form 940 06 Information Statements Made on Behalf of Certain Foreign Corporations. 2012 tax form 940 Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. 2012 tax form 940 02 of this revenue procedure to the shareholder’s federal income tax return for each taxable year for which a statement is required under section 5. 2012 tax form 940 01 of this revenue procedure. 2012 tax form 940 . 2012 tax form 940 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. 2012 tax form 940 (1) A partnership required to file a U. 2012 tax form 940 S. 2012 tax form 940 partnership return other than under § 1. 2012 tax form 940 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) described in the second sentence of section 5. 2012 tax form 940 03(1) of this revenue procedure reflecting its share of any § 108(i) information must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. 2012 tax form 940 07(1)(a) through (d) of this revenue procedure). 2012 tax form 940 (2) If a partnership described in section 5. 2012 tax form 940 07(1) of this revenue procedure receives a statement described in sections 5. 2012 tax form 940 03(2) or 5. 2012 tax form 940 05(5) of this revenue procedure or this section 5. 2012 tax form 940 07(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership. 2012 tax form 940 If an S corporation receives a statement described in sections 5. 2012 tax form 940 03(2) or 5. 2012 tax form 940 05(5) of this revenue procedure or this section 5. 2012 tax form 940 07(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 5. 2012 tax form 940 03(2)(b)(i) through (viii) of this revenue procedure. 2012 tax form 940 The partnership or S corporation must attach the statement or statements to the Schedule K-1 (Form 1065 or Form 1065-B) or Schedule K-1 (Form 1120S) that is provided to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. 2012 tax form 940 The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. 2012 tax form 940 (3) This paragraph 5. 2012 tax form 940 07(3) provides the rules for persons described in section 4. 2012 tax form 940 12(6) of this revenue procedure if the foreign partnership, for which the Category 1 or 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items described in the second sentence of section 5. 2012 tax form 940 03(1) of this revenue procedure, or a statement described in sections 5. 2012 tax form 940 03(2) or 5. 2012 tax form 940 05(5) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). 2012 tax form 940 (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. 2012 tax form 940 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 5. 2012 tax form 940 07(3)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. 2012 tax form 940 (b) A Category 2 filer must include its share of the information described in section 4. 2012 tax form 940 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. 2012 tax form 940 Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. 2012 tax form 940 (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. 2012 tax form 940 07(3)(a)(ii) and 5. 2012 tax form 940 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. 2012 tax form 940 However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. 2012 tax form 940 (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. 2012 tax form 940 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. 2012 tax form 940 07(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 5. 2012 tax form 940 07(1) and (2) of this revenue procedure. 2012 tax form 940 Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. 2012 tax form 940 12(6) of this revenue procedure. 2012 tax form 940 SECTION 6. 2012 tax form 940 EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. 2012 tax form 940 SECTION 7. 2012 tax form 940 TRANSITION RULE . 2012 tax form 940 01 Noncomplying Election. 2012 tax form 940 Except as otherwise provided in this section 7. 2012 tax form 940 01, the Service will treat a § 108(i) election as effective if a taxpayer files an election with the taxpayer’s federal income tax return filed on or before September 16, 2009, using any reasonable procedure to make the election. 2012 tax form 940 However, an election that does not comply with section 4 of this revenue procedure will not be effective unless the taxpayer on or before November 16, 2009, files an amended return for the taxable year of the election and complies with the requirements of section 4 of this revenue procedure. 2012 tax form 940 . 2012 tax form 940 02 Modification of Election. 2012 tax form 940 A taxpayer that files a § 108(i) election on or before September 16, 2009, may modify that election by filing an amended return on or before November 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). 2012 tax form 940 To be effective, a modification of an election described in the preceding sentence must satisfy the requirements for an election described in section 4 of this revenue procedure. 2012 tax form 940 . 2012 tax form 940 03 Notations. 2012 tax form 940 A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. 2012 tax form 940 A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. 2012 tax form 940 See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. 2012 tax form 940 SECTION 8. 2012 tax form 940 PAPERWORK REDUCTION ACT The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. 2012 tax form 940 S. 2012 tax form 940 C. 2012 tax form 940 3507) under control number 1545-2147. 2012 tax form 940 An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. 2012 tax form 940 The collection of information in this revenue procedure is in sections 4, 5 and 7. 2012 tax form 940 This information is required to determine the amount of income and deductions a taxpayer elects to defer and to track those amounts until the taxpayer has reported all deferred income and deductions on the taxpayer’s tax return. 2012 tax form 940 This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. 2012 tax form 940 The collection of information is required to obtain a benefit. 2012 tax form 940 The likely respondents are C corporations, shareholders of S corporations, partners of partnerships, and other individuals engaged in a trade or business, that reacquire applicable debt instruments in 2009 or 2010. 2012 tax form 940 The estimated total annual reporting burden is 300,000 hours. 2012 tax form 940 The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. 2012 tax form 940 The estimated number of respondents is 50,000. 2012 tax form 940 Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. 2012 tax form 940 Generally, tax returns and return information are confidential, as required by § 6103. 2012 tax form 940 DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. 2012 tax form 940 Stoner of the Office of Associate Chief Counsel (Passthroughs & Special Industries) and Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). 2012 tax form 940 For further information regarding this revenue procedure, contact Megan A. 2012 tax form 940 Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. 2012 tax form 940 Blanchard at (202) 622-3950 for questions involving OID, Ronald M. 2012 tax form 940 Gootzeit at (202) 622-3860 for questions involving foreign entities, Robert Rhyne at (202) 622-7790 for questions involving earnings and profits and consolidated groups, and Craig Wojay at (202) 622-4920 for questions on § 108(i) generally (not toll-free calls). 2012 tax form 940 Prev  Up  Next   Home   More Internal Revenue Bulletins
Español

Tribal Governments

Official information and services from the U.S. government

The 2012 Tax Form 940

2012 tax form 940 4. 2012 tax form 940   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. 2012 tax form 940 Loan secured by benefits. 2012 tax form 940 Waiver of survivor benefits. 2012 tax form 940 Waiver of 30-day waiting period before annuity starting date. 2012 tax form 940 Involuntary cash-out of benefits not more than dollar limit. 2012 tax form 940 Exception for certain loans. 2012 tax form 940 Exception for QDRO. 2012 tax form 940 SIMPLE and safe harbor 401(k) plan exception. 2012 tax form 940 Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. 2012 tax form 940 Installment percentage. 2012 tax form 940 Extended period for making contributions. 2012 tax form 940 ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. 2012 tax form 940 Caution: Form 5500-EZ not required. 2012 tax form 940 Form 5500. 2012 tax form 940 Electronic filing of Forms 5500 and 5500-SF. 2012 tax form 940 Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. 2012 tax form 940 dol. 2012 tax form 940 gov/ebsa/pdf/2013-5500. 2012 tax form 940 pdf www. 2012 tax form 940 dol. 2012 tax form 940 gov/ebsa/pdf/2013-5500-SF. 2012 tax form 940 pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2012 tax form 940 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2012 tax form 940 1040 U. 2012 tax form 940 S. 2012 tax form 940 Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. 2012 tax form 940 For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. 2012 tax form 940 For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. 2012 tax form 940 R. 2012 tax form 940 10 plans. 2012 tax form 940 A sole proprietor or a partnership can set up one of these plans. 2012 tax form 940 A common-law employee or a partner cannot set up one of these plans. 2012 tax form 940 The plans described here can also be set up and maintained by employers that are corporations. 2012 tax form 940 All the rules discussed here apply to corporations except where specifically limited to the self-employed. 2012 tax form 940 The plan must be for the exclusive benefit of employees or their beneficiaries. 2012 tax form 940 These qualified plans can include coverage for a self-employed individual. 2012 tax form 940 As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2012 tax form 940 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2012 tax form 940 Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. 2012 tax form 940 You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. 2012 tax form 940 Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. 2012 tax form 940 It provides benefits to a participant largely based on the amount contributed to that participant's account. 2012 tax form 940 Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. 2012 tax form 940 A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. 2012 tax form 940 Profit-sharing plan. 2012 tax form 940   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). 2012 tax form 940 A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. 2012 tax form 940 An employer may even make no contribution to the plan for a given year. 2012 tax form 940   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. 2012 tax form 940   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). 2012 tax form 940 Money purchase pension plan. 2012 tax form 940   Contributions to a money purchase pension plan are fixed and are not based on your business profits. 2012 tax form 940 For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. 2012 tax form 940 This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. 2012 tax form 940 Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. 2012 tax form 940 Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. 2012 tax form 940 Actuarial assumptions and computations are required to figure these contributions. 2012 tax form 940 Generally, you will need continuing professional help to have a defined benefit plan. 2012 tax form 940 Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. 2012 tax form 940 Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. 2012 tax form 940 The following is a brief overview of important qualification rules that generally have not yet been discussed. 2012 tax form 940 It is not intended to be all-inclusive. 2012 tax form 940 See Setting Up a Qualified Plan , later. 2012 tax form 940 Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. 2012 tax form 940 A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. 2012 tax form 940 Plan assets must not be diverted. 2012 tax form 940   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. 2012 tax form 940 As a general rule, the assets cannot be diverted to the employer. 2012 tax form 940 Minimum coverage requirement must be met. 2012 tax form 940   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. 2012 tax form 940 50 employees, or The greater of: 40% of all employees, or Two employees. 2012 tax form 940 If there is only one employee, the plan must benefit that employee. 2012 tax form 940 Contributions or benefits must not discriminate. 2012 tax form 940   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. 2012 tax form 940 Contributions and benefits must not be more than certain limits. 2012 tax form 940   Your plan must not provide for contributions or benefits that are more than certain limits. 2012 tax form 940 The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. 2012 tax form 940 These limits are discussed later in this chapter under Contributions. 2012 tax form 940 Minimum vesting standard must be met. 2012 tax form 940   Your plan must satisfy certain requirements regarding when benefits vest. 2012 tax form 940 A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. 2012 tax form 940 A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. 2012 tax form 940 Special rules apply to forfeited benefit amounts. 2012 tax form 940 In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. 2012 tax form 940   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. 2012 tax form 940 Forfeitures must be used instead to reduce employer contributions. 2012 tax form 940 Participation. 2012 tax form 940   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. 2012 tax form 940 Has reached age 21. 2012 tax form 940 Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). 2012 tax form 940 A plan cannot exclude an employee because he or she has reached a specified age. 2012 tax form 940 Leased employee. 2012 tax form 940   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. 2012 tax form 940 These rules include those in all the following areas. 2012 tax form 940 Nondiscrimination in coverage, contributions, and benefits. 2012 tax form 940 Minimum age and service requirements. 2012 tax form 940 Vesting. 2012 tax form 940 Limits on contributions and benefits. 2012 tax form 940 Top-heavy plan requirements. 2012 tax form 940 Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. 2012 tax form 940 Benefit payment must begin when required. 2012 tax form 940   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. 2012 tax form 940 The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. 2012 tax form 940 The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. 2012 tax form 940 The plan year in which the participant separates from service. 2012 tax form 940 Early retirement. 2012 tax form 940   Your plan can provide for payment of retirement benefits before the normal retirement age. 2012 tax form 940 If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. 2012 tax form 940 Satisfies the service requirement for the early retirement benefit. 2012 tax form 940 Separates from service with a nonforfeitable right to an accrued benefit. 2012 tax form 940 The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. 2012 tax form 940 Required minimum distributions. 2012 tax form 940   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. 2012 tax form 940 See Required Distributions , under Distributions, later. 2012 tax form 940 Survivor benefits. 2012 tax form 940   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. 2012 tax form 940 A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. 2012 tax form 940 A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. 2012 tax form 940   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. 2012 tax form 940 The participant does not choose benefits in the form of a life annuity. 2012 tax form 940 The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. 2012 tax form 940 The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. 2012 tax form 940 Loan secured by benefits. 2012 tax form 940   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. 2012 tax form 940 Waiver of survivor benefits. 2012 tax form 940   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. 2012 tax form 940 The plan also must allow the participant to withdraw the waiver. 2012 tax form 940 The spouse's consent must be witnessed by a plan representative or notary public. 2012 tax form 940 Waiver of 30-day waiting period before annuity starting date. 2012 tax form 940    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. 2012 tax form 940   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. 2012 tax form 940 Involuntary cash-out of benefits not more than dollar limit. 2012 tax form 940   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. 2012 tax form 940   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. 2012 tax form 940 If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. 2012 tax form 940   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. 2012 tax form 940   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. 2012 tax form 940 A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. 2012 tax form 940 See Section 402(f) Notice under Distributions, later, for more details. 2012 tax form 940 Consolidation, merger, or transfer of assets or liabilities. 2012 tax form 940   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. 2012 tax form 940 (if the plan had then terminated). 2012 tax form 940 Benefits must not be assigned or alienated. 2012 tax form 940   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. 2012 tax form 940 Exception for certain loans. 2012 tax form 940   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. 2012 tax form 940 A disqualified person is defined later in this chapter under Prohibited Transactions. 2012 tax form 940 Exception for QDRO. 2012 tax form 940   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. 2012 tax form 940   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. 2012 tax form 940 Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. 2012 tax form 940 No benefit reduction for social security increases. 2012 tax form 940   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. 2012 tax form 940 This rule also applies to plans supplementing the benefits provided by other federal or state laws. 2012 tax form 940 Elective deferrals must be limited. 2012 tax form 940   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. 2012 tax form 940 See Limit on Elective Deferrals later in this chapter. 2012 tax form 940 Top-heavy plan requirements. 2012 tax form 940   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. 2012 tax form 940   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. 2012 tax form 940 Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. 2012 tax form 940   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. 2012 tax form 940 These qualification requirements for top-heavy plans are explained in section 416 and its regulations. 2012 tax form 940 SIMPLE and safe harbor 401(k) plan exception. 2012 tax form 940   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. 2012 tax form 940 QACAs (discussed later) also are not subject to top-heavy requirements. 2012 tax form 940 Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. 2012 tax form 940 First you adopt a written plan. 2012 tax form 940 Then you invest the plan assets. 2012 tax form 940 You, the employer, are responsible for setting up and maintaining the plan. 2012 tax form 940 If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. 2012 tax form 940 If you have employees, see Participation, under Qualification Rules, earlier. 2012 tax form 940 Set-up deadline. 2012 tax form 940   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). 2012 tax form 940 Credit for startup costs. 2012 tax form 940   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. 2012 tax form 940 For more information, see Credit for startup costs under Reminders, earlier. 2012 tax form 940 Adopting a Written Plan You must adopt a written plan. 2012 tax form 940 The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. 2012 tax form 940 Or it can be an individually designed plan. 2012 tax form 940 Written plan requirement. 2012 tax form 940   To qualify, the plan you set up must be in writing and must be communicated to your employees. 2012 tax form 940 The plan's provisions must be stated in the plan. 2012 tax form 940 It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. 2012 tax form 940 Master or prototype plans. 2012 tax form 940   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. 2012 tax form 940 Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). 2012 tax form 940 Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. 2012 tax form 940 Under a prototype plan, a separate trust or custodial account is established for each employer. 2012 tax form 940 Plan providers. 2012 tax form 940   The following organizations generally can provide IRS-approved master or prototype plans. 2012 tax form 940 Banks (including some savings and loan associations and federally insured credit unions). 2012 tax form 940 Trade or professional organizations. 2012 tax form 940 Insurance companies. 2012 tax form 940 Mutual funds. 2012 tax form 940 Individually designed plan. 2012 tax form 940   If you prefer, you can set up an individually designed plan to meet specific needs. 2012 tax form 940 Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. 2012 tax form 940 You may need professional help for this. 2012 tax form 940 See Rev. 2012 tax form 940 Proc. 2012 tax form 940 2014-6, 2014-1 I. 2012 tax form 940 R. 2012 tax form 940 B. 2012 tax form 940 198, available at www. 2012 tax form 940 irs. 2012 tax form 940 gov/irb/2014-1_IRB/ar10. 2012 tax form 940 html, as annually updated, that may help you decide whether to apply for approval. 2012 tax form 940 Internal Revenue Bulletins are available on the IRS website at IRS. 2012 tax form 940 gov They are also available at most IRS offices and at certain libraries. 2012 tax form 940 User fee. 2012 tax form 940   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. 2012 tax form 940 At least one of them must be a non-highly compensated employee participating in the plan. 2012 tax form 940 The fee does not apply to requests made by the later of the following dates. 2012 tax form 940 The end of the 5th plan year the plan is in effect. 2012 tax form 940 The end of any remedial amendment period for the plan that begins within the first 5 plan years. 2012 tax form 940 The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. 2012 tax form 940   For more information about whether the user fee applies, see Rev. 2012 tax form 940 Proc. 2012 tax form 940 2014-8, 2014-1 I. 2012 tax form 940 R. 2012 tax form 940 B. 2012 tax form 940 242, available at www. 2012 tax form 940 irs. 2012 tax form 940 gov/irb/2014-1_IRB/ar12. 2012 tax form 940 html, as may be annually updated; Notice 2003-49, 2003-32 I. 2012 tax form 940 R. 2012 tax form 940 B. 2012 tax form 940 294, available at www. 2012 tax form 940 irs. 2012 tax form 940 gov/irb/2003-32_IRB/ar13. 2012 tax form 940 html; and Notice 2011-86, 2011-45 I. 2012 tax form 940 R. 2012 tax form 940 B. 2012 tax form 940 698, available at www. 2012 tax form 940 irs. 2012 tax form 940 gov/irb/2011-45_IRB/ar11. 2012 tax form 940 html. 2012 tax form 940 Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. 2012 tax form 940 You can establish a trust or custodial account to invest the funds. 2012 tax form 940 You, the trust, or the custodial account can buy an annuity contract from an insurance company. 2012 tax form 940 Life insurance can be included only if it is incidental to the retirement benefits. 2012 tax form 940 You set up a trust by a legal instrument (written document). 2012 tax form 940 You may need professional help to do this. 2012 tax form 940 You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. 2012 tax form 940 You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. 2012 tax form 940 If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. 2012 tax form 940 Other plan requirements. 2012 tax form 940   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. 2012 tax form 940 Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. 2012 tax form 940 Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. 2012 tax form 940 For information on this funding requirement, see section 412 and its regulations. 2012 tax form 940 Quarterly installments of required contributions. 2012 tax form 940   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. 2012 tax form 940 If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. 2012 tax form 940 Due dates. 2012 tax form 940   The due dates for the installments are 15 days after the end of each quarter. 2012 tax form 940 For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). 2012 tax form 940 Installment percentage. 2012 tax form 940   Each quarterly installment must be 25% of the required annual payment. 2012 tax form 940 Extended period for making contributions. 2012 tax form 940   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. 2012 tax form 940 Contributions A qualified plan is generally funded by your contributions. 2012 tax form 940 However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. 2012 tax form 940 See Employee Contributions and Elective Deferrals later. 2012 tax form 940 Contributions deadline. 2012 tax form 940   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. 2012 tax form 940 Self-employed individual. 2012 tax form 940   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. 2012 tax form 940 Your net earnings must be from your personal services, not from your investments. 2012 tax form 940 If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. 2012 tax form 940 Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. 2012 tax form 940 There are also limits on the amount you can deduct. 2012 tax form 940 See Deduction Limits , later. 2012 tax form 940 Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. 2012 tax form 940 The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. 2012 tax form 940 Defined benefit plan. 2012 tax form 940   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. 2012 tax form 940 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. 2012 tax form 940 $205,000 ($210,000 for 2014). 2012 tax form 940 Defined contribution plan. 2012 tax form 940   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. 2012 tax form 940 100% of the participant's compensation. 2012 tax form 940 $51,000 ($52,000 for 2014). 2012 tax form 940   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. 2012 tax form 940 Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. 2012 tax form 940 Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. 2012 tax form 940 Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. 2012 tax form 940 See Regulations sections 1. 2012 tax form 940 401(k)-2 and 1. 2012 tax form 940 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2012 tax form 940 When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. 2012 tax form 940 But you can apply them to the previous year if all the following requirements are met. 2012 tax form 940 You make them by the due date of your tax return for the previous year (plus extensions). 2012 tax form 940 The plan was established by the end of the previous year. 2012 tax form 940 The plan treats the contributions as though it had received them on the last day of the previous year. 2012 tax form 940 You do either of the following. 2012 tax form 940 You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. 2012 tax form 940 You deduct the contributions on your tax return for the previous year. 2012 tax form 940 A partnership shows contributions for partners on Form 1065. 2012 tax form 940 Employer's promissory note. 2012 tax form 940   Your promissory note made out to the plan is not a payment that qualifies for the deduction. 2012 tax form 940 Also, issuing this note is a prohibited transaction subject to tax. 2012 tax form 940 See Prohibited Transactions , later. 2012 tax form 940 Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2012 tax form 940 The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2012 tax form 940 Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. 2012 tax form 940 Defined contribution plans. 2012 tax form 940   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. 2012 tax form 940 If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. 2012 tax form 940 See Deduction Limit for Self-Employed Individuals , later. 2012 tax form 940   When figuring the deduction limit, the following rules apply. 2012 tax form 940 Elective deferrals (discussed later) are not subject to the limit. 2012 tax form 940 Compensation includes elective deferrals. 2012 tax form 940 The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). 2012 tax form 940 Defined benefit plans. 2012 tax form 940   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. 2012 tax form 940 Consequently, an actuary must figure your deduction limit. 2012 tax form 940    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. 2012 tax form 940 Table 4–1. 2012 tax form 940 Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. 2012 tax form 940 Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. 2012 tax form 940 Compensation is your net earnings from self-employment, defined in chapter 1. 2012 tax form 940 This definition takes into account both the following items. 2012 tax form 940 The deduction for the deductible part of your self-employment tax. 2012 tax form 940 The deduction for contributions on your behalf to the plan. 2012 tax form 940 The deduction for your own contributions and your net earnings depend on each other. 2012 tax form 940 For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. 2012 tax form 940 To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. 2012 tax form 940 Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. 2012 tax form 940 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. 2012 tax form 940 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. 2012 tax form 940 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. 2012 tax form 940 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. 2012 tax form 940 ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. 2012 tax form 940 Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. 2012 tax form 940 For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. 2012 tax form 940 However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. 2012 tax form 940 See Deduction Limit for Self-Employed Individuals, earlier. 2012 tax form 940 The amount you carry over and deduct may be subject to the excise tax discussed next. 2012 tax form 940 Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. 2012 tax form 940 Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. 2012 tax form 940 In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. 2012 tax form 940 Special rule for self-employed individuals. 2012 tax form 940   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. 2012 tax form 940 Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. 2012 tax form 940 See Minimum Funding Requirement , earlier. 2012 tax form 940 Reporting the tax. 2012 tax form 940   You must report the tax on your nondeductible contributions on Form 5330. 2012 tax form 940 Form 5330 includes a computation of the tax. 2012 tax form 940 See the separate instructions for completing the form. 2012 tax form 940 Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. 2012 tax form 940 A plan with this type of arrangement is popularly known as a “401(k) plan. 2012 tax form 940 ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. 2012 tax form 940 ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. 2012 tax form 940 In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. 2012 tax form 940 A profit-sharing plan. 2012 tax form 940 A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. 2012 tax form 940 Partnership. 2012 tax form 940   A partnership can have a 401(k) plan. 2012 tax form 940 Restriction on conditions of participation. 2012 tax form 940   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. 2012 tax form 940 Matching contributions. 2012 tax form 940   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. 2012 tax form 940 For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. 2012 tax form 940 Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. 2012 tax form 940 Nonelective contributions. 2012 tax form 940   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. 2012 tax form 940 These are called nonelective contributions. 2012 tax form 940 Employee compensation limit. 2012 tax form 940   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. 2012 tax form 940 This limit is $260,000 in 2014. 2012 tax form 940 SIMPLE 401(k) plan. 2012 tax form 940   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. 2012 tax form 940 A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. 2012 tax form 940 For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. 2012 tax form 940 Distributions. 2012 tax form 940   Certain rules apply to distributions from 401(k) plans. 2012 tax form 940 See Distributions From 401(k) Plans , later. 2012 tax form 940 Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. 2012 tax form 940 This limit applies without regard to community property laws. 2012 tax form 940 Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. 2012 tax form 940 For 2013 and 2014, the basic limit on elective deferrals is $17,500. 2012 tax form 940 This limit applies to all salary reduction contributions and elective deferrals. 2012 tax form 940 If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. 2012 tax form 940 Catch-up contributions. 2012 tax form 940   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. 2012 tax form 940 The catch-up contribution limit for 2013 and 2014 is $5,500. 2012 tax form 940 Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). 2012 tax form 940 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. 2012 tax form 940 The catch-up contribution limit. 2012 tax form 940 The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 2012 tax form 940 Treatment of contributions. 2012 tax form 940   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. 2012 tax form 940 Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. 2012 tax form 940 Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. 2012 tax form 940 Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. 2012 tax form 940 Forfeiture. 2012 tax form 940   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. 2012 tax form 940 Reporting on Form W-2. 2012 tax form 940   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. 2012 tax form 940 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. 2012 tax form 940 You must also include them in box 12. 2012 tax form 940 Mark the “Retirement plan” checkbox in box 13. 2012 tax form 940 For more information, see the Form W-2 instructions. 2012 tax form 940 Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. 2012 tax form 940 Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. 2012 tax form 940 These contributions are elective deferrals. 2012 tax form 940 An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). 2012 tax form 940 For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. 2012 tax form 940 Eligible automatic contribution arrangement. 2012 tax form 940   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. 2012 tax form 940 This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). 2012 tax form 940 There is no required deferral percentage. 2012 tax form 940 Withdrawals. 2012 tax form 940   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. 2012 tax form 940 The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. 2012 tax form 940 The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. 2012 tax form 940   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. 2012 tax form 940 The additional 10% tax on early distributions will not apply to the distribution. 2012 tax form 940 Notice requirement. 2012 tax form 940   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. 2012 tax form 940 The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. 2012 tax form 940 The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. 2012 tax form 940 The notice also must explain how contributions will be invested in the absence of an investment election by the employee. 2012 tax form 940 Qualified automatic contribution arrangement. 2012 tax form 940    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. 2012 tax form 940 It contains an automatic enrollment feature, and mandatory employer contributions are required. 2012 tax form 940 If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). 2012 tax form 940 Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. 2012 tax form 940 Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. 2012 tax form 940 In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). 2012 tax form 940 If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. 2012 tax form 940 It must be applied uniformly. 2012 tax form 940 It must not exceed 10%. 2012 tax form 940 It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. 2012 tax form 940 It must increase to at least 4% in the following plan year. 2012 tax form 940 It must increase to at least 5% in the following plan year. 2012 tax form 940 It must increase to at least 6% in subsequent plan years. 2012 tax form 940 Matching or nonelective contributions. 2012 tax form 940   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. 2012 tax form 940 Matching contributions. 2012 tax form 940 You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. 2012 tax form 940 An amount equal to 100% of elective deferrals, up to 1% of compensation. 2012 tax form 940 An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. 2012 tax form 940 Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. 2012 tax form 940 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2012 tax form 940 Nonelective contributions. 2012 tax form 940 You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. 2012 tax form 940 Vesting requirements. 2012 tax form 940   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. 2012 tax form 940 These contributions are subject to special withdrawal restrictions, discussed later. 2012 tax form 940 Notice requirements. 2012 tax form 940   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. 2012 tax form 940 The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. 2012 tax form 940 The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. 2012 tax form 940 Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. 2012 tax form 940 The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. 2012 tax form 940 Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. 2012 tax form 940 He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. 2012 tax form 940 The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. 2012 tax form 940 Excess withdrawn by April 15. 2012 tax form 940   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. 2012 tax form 940 However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. 2012 tax form 940 The distribution is not subject to the additional 10% tax on early distributions. 2012 tax form 940   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. 2012 tax form 940   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. 2012 tax form 940 Excess not withdrawn by April 15. 2012 tax form 940   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. 2012 tax form 940 In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. 2012 tax form 940 Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. 2012 tax form 940 Reporting corrective distributions on Form 1099-R. 2012 tax form 940   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. 2012 tax form 940 For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. 2012 tax form 940 Tax on excess contributions of highly compensated employees. 2012 tax form 940   The law provides tests to detect discrimination in a plan. 2012 tax form 940 If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. 2012 tax form 940 Report the tax on Form 5330. 2012 tax form 940 The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. 2012 tax form 940 Also, the ACP test does not apply to these plans if certain additional requirements are met. 2012 tax form 940   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. 2012 tax form 940 Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. 2012 tax form 940   See Regulations sections 1. 2012 tax form 940 401(k)-2 and 1. 2012 tax form 940 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2012 tax form 940    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. 2012 tax form 940 Safe harbor 401(k) plan. 2012 tax form 940 If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. 2012 tax form 940 For your plan to be a safe harbor plan, you must meet the following conditions. 2012 tax form 940 Matching or nonelective contributions. 2012 tax form 940 You must make matching or nonelective contributions according to one of the following formulas. 2012 tax form 940 Matching contributions. 2012 tax form 940 You must make matching contributions according to the following rules. 2012 tax form 940 You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. 2012 tax form 940 You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. 2012 tax form 940 The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2012 tax form 940 Nonelective contributions. 2012 tax form 940 You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. 2012 tax form 940 These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. 2012 tax form 940 Notice requirement. 2012 tax form 940 You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. 2012 tax form 940 The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. 2012 tax form 940 Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. 2012 tax form 940 Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. 2012 tax form 940 However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. 2012 tax form 940 Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. 2012 tax form 940 Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. 2012 tax form 940 Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. 2012 tax form 940 An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. 2012 tax form 940 The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. 2012 tax form 940 Rollover. 2012 tax form 940   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. 2012 tax form 940 For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. 2012 tax form 940 R. 2012 tax form 940 B. 2012 tax form 940 872, available at www. 2012 tax form 940 irs. 2012 tax form 940 gov/irb/2010-51_IRB/ar11. 2012 tax form 940 html, and Notice 2013-74. 2012 tax form 940 A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. 2012 tax form 940 Rollover amounts do not apply toward the annual deferral limit. 2012 tax form 940 Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. 2012 tax form 940 See the Form W-2 and 1099-R instructions for detailed information. 2012 tax form 940 Distributions Amounts paid to plan participants from a qualified plan are called distributions. 2012 tax form 940 Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. 2012 tax form 940 Also, certain loans may be treated as distributions. 2012 tax form 940 See Loans Treated as Distributions in Publication 575. 2012 tax form 940 Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). 2012 tax form 940 These distribution rules apply individually to each qualified plan. 2012 tax form 940 You cannot satisfy the requirement for one plan by taking a distribution from another. 2012 tax form 940 The plan must provide that these rules override any inconsistent distribution options previously offered. 2012 tax form 940 Minimum distribution. 2012 tax form 940   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. 2012 tax form 940 This minimum is figured by dividing the account balance by the applicable life expectancy. 2012 tax form 940 The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. 2012 tax form 940 For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. 2012 tax form 940 Required beginning date. 2012 tax form 940   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. 2012 tax form 940   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. 2012 tax form 940 Calendar year in which he or she reaches age 70½. 2012 tax form 940 Calendar year in which he or she retires from employment with the employer maintaining the plan. 2012 tax form 940 However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. 2012 tax form 940   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. 2012 tax form 940 For more information, see Tax on Excess Accumulation in Publication 575. 2012 tax form 940 Distributions after the starting year. 2012 tax form 940   The distribution required to be made by April 1 is treated as a distribution for the starting year. 2012 tax form 940 (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. 2012 tax form 940 ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. 2012 tax form 940 If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). 2012 tax form 940 Distributions after participant's death. 2012 tax form 940   See Publication 575 for the special rules covering distributions made after the death of a participant. 2012 tax form 940 Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. 2012 tax form 940 The employee retires, dies, becomes disabled, or otherwise severs employment. 2012 tax form 940 The plan ends and no other defined contribution plan is established or continued. 2012 tax form 940 In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. 2012 tax form 940 For the rules on hardship distributions, including the limits on them, see Regulations section 1. 2012 tax form 940 401(k)-1(d). 2012 tax form 940 The employee becomes eligible for a qualified reservist distribution (defined next). 2012 tax form 940 Certain distributions listed above may be subject to the tax on early distributions discussed later. 2012 tax form 940 Qualified reservist distributions. 2012 tax form 940   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. 2012 tax form 940 All or part of a qualified reservist distribution can be recontributed to an IRA. 2012 tax form 940 The additional 10% tax on early distributions does not apply to a qualified reservist distribution. 2012 tax form 940 Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. 2012 tax form 940 Since most recipients have no cost basis, a distribution is generally fully taxable. 2012 tax form 940 An exception is a distribution that is properly rolled over as discussed under Rollover, next. 2012 tax form 940 The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. 2012 tax form 940 See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. 2012 tax form 940 Note. 2012 tax form 940 A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. 2012 tax form 940 Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. 2012 tax form 940 See Qualified distributions under Qualified Roth Contribution Program, earlier. 2012 tax form 940 Rollover. 2012 tax form 940   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. 2012 tax form 940 However, it may be subject to withholding as discussed under Withholding requirement, later. 2012 tax form 940 A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. 2012 tax form 940 Eligible rollover distribution. 2012 tax form 940   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. 2012 tax form 940 A required minimum distribution. 2012 tax form 940 See Required Distributions , earlier. 2012 tax form 940 Any of a series of substantially equal payments made at least once a year over any of the following periods. 2012 tax form 940 The employee's life or life expectancy. 2012 tax form 940 The joint lives or life expectancies of the employee and beneficiary. 2012 tax form 940 A period of 10 years or longer. 2012 tax form 940 A hardship distribution. 2012 tax form 940 The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. 2012 tax form 940 See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. 2012 tax form 940 Loans treated as distributions. 2012 tax form 940 Dividends on employer securities. 2012 tax form 940 The cost of any life insurance coverage provided under a qualified retirement plan. 2012 tax form 940 Similar items designated by the IRS in published guidance. 2012 tax form 940 See, for example, the Instructions for Forms 1099-R and 5498. 2012 tax form 940 Rollover of nontaxable amounts. 2012 tax form 940   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. 2012 tax form 940 If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. 2012 tax form 940 If the rollover is to an IRA, the transfer can be made by any rollover method. 2012 tax form 940 Note. 2012 tax form 940 A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. 2012 tax form 940 If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). 2012 tax form 940 More information. 2012 tax form 940   For more information about rollovers, see Rollovers in Pubs. 2012 tax form 940 575 and 590. 2012 tax form 940 Withholding requirement. 2012 tax form 940   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. 2012 tax form 940 Exceptions. 2012 tax form 940   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. 2012 tax form 940   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. 2012 tax form 940 Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). 2012 tax form 940 However, the participant can choose not to have tax withheld from these distributions. 2012 tax form 940 If the participant does not make this choice, the following withholding rules apply. 2012 tax form 940 For periodic distributions, withholding is based on their treatment as wages. 2012 tax form 940 For nonperiodic distributions, 10% of the taxable part is withheld. 2012 tax form 940 Estimated tax payments. 2012 tax form 940   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. 2012 tax form 940 For more information, see Withholding Tax and Estimated Tax in Publication 575. 2012 tax form 940 Section 402(f) Notice. 2012 tax form 940   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. 2012 tax form 940 That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. 2012 tax form 940 That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. 2012 tax form 940 That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. 2012 tax form 940 Certain other rules that may be applicable. 2012 tax form 940   Notice 2009-68, 2009-39 I. 2012 tax form 940 R. 2012 tax form 940 B. 2012 tax form 940 423, available at www. 2012 tax form 940 irs. 2012 tax form 940 gov/irb/2009-39_IRB/ar14. 2012 tax form 940 html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. 2012 tax form 940 If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. 2012 tax form 940 Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. 2012 tax form 940 Timing of notice. 2012 tax form 940   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. 2012 tax form 940 Method of notice. 2012 tax form 940   The written notice must be provided individually to each distributee of an eligible rollover distribution. 2012 tax form 940 Posting of the notice is not sufficient. 2012 tax form 940 However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. 2012 tax form 940 See Regulations section 1. 2012 tax form 940 401(a)-21. 2012 tax form 940 Tax on failure to give notice. 2012 tax form 940   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. 2012 tax form 940 The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. 2012 tax form 940 Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. 2012 tax form 940 This tax applies to the amount received that the employee must include in income. 2012 tax form 940 Exceptions. 2012 tax form 940   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. 2012 tax form 940 Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. 2012 tax form 940 Made due to the employee having a qualifying disability. 2012 tax form 940 Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. 2012 tax form 940 (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. 2012 tax form 940 ) Made to an employee after separation from service if the separation occurred during o